Treasury Scraps Limits for Fannie/Freddie Funding – How the US Government Created, Continued, and Perpetuated the Crisis
To get an idea of things to come in 2010, one need only look at the Treasury’s recent removal of all funding limits previously self-imposed on spending taxpayer money on Fannie and Freddie …
The Obama administration’s decision to cover an unlimited amount of losses at the mortgage-finance giants Fannie Mae and Freddie Mac over the next three years stirred controversy over the holiday.
The Treasury announced Thursday it was removing the caps that limited the amount of available capital to the companies to $200 billion each.
Unlimited access to bailout funds through 2012 was “necessary for preserving the continued strength and stability of the mortgage market,” the Treasury said. Fannie and Freddie purchase or guarantee most U.S. home mortgages and have run up huge losses stemming from the worst wave of defaults since the 1930s.
“The timing of this executive order giving Fannie and Freddie a blank check is no coincidence,” said Rep. Spencer Bachus of Alabama, the ranking Republican on the House Financial Services Committee. He said the Christmas Eve announcement was designed “to prevent the general public from taking note.”
Treasury officials couldn’t be reached for comment Friday.
So far, Treasury has provided $60 billion of capital to Fannie and $51 billion to Freddie. Mahesh Swaminathan, a senior mortgage analyst at Credit Suisse in New York, said he didn’t believe Fannie and Freddie would need more than $200 billion apiece from the Treasury. But he and other analysts have said the market would find a larger commitment from the Treasury reassuring.
In exchange for the funding, the Treasury has received preferred stock in the companies paying 10% dividends. The Treasury also has warrants to acquire nearly 80% of the common shares in each firm.
The Treasury removed the cap on the size of available bailout funds by amending agreements it reached with the companies in September 2008, when the government seized control of the agencies under a legal process called conservatorship. The agreement allowed the Treasury to make amendments through the end of the year, without the consent of Congress. Changes made after Dec. 31 would likely involve a struggle with lawmakers over the terms.
Some Republicans are angry the administration is expanding the potential size of the bailout without having a plan for eventually ending the federal government’s role in the companies.
The Treasury reiterated administration plans for a “preliminary report” on the government’s future role in the mortgage market around the time the federal budget proposal is released in February.
The companies on Thursday disclosed new packages that will pay Fannie Chief Executive Officer Michael Williams and Freddie CEO Charles Haldeman Jr. as much as $6 million a year, including bonuses. The packages were approved by the Treasury and the Federal Housing Finance Agency, or FHFA, which regulates the companies.
The FHFA said compensation for executive officers of the companies in 2009, on average, is down 40% from the pay levels before the conservatorship.
Under the conservatorship, top officers of Fannie and Freddie take their cues from the Treasury and regulators on all major decisions, current and former executives say. The government has made foreclosure-prevention efforts its top priority.
The pay packages for top officers are entirely in cash; company shares have been trading on the New York Stock Exchange at less than $2 apiece, and it isn’t clear when the companies will to profitability or whether common shares will have any value in the long term.
For the CEOs, annual compensation consists of a base salary of $900,000, deferred base salary of $3.1 million and incentive pay of as much as $2 million.
When Mr. Haldeman was hired by Freddie in July, the company set his base pay at $900,000 and said his additional “incentive” pay would depend on a decision by the regulator.
At Fannie, Mr. Williams was chief operating officer until he was promoted in April to CEO. As COO, his base salary was $676,000. He also had annual deferred pay of $2.3 million and a long-term incentive award of as much as $1.5 million.
Under the new packages, Fannie will pay as much as about $3.6 million annually to David M. Johnson, chief financial officer; $2.4 million to Kenneth Bacon, who heads a unit that finances apartment buildings; $2.8 million to David Benson, capital markets chief; $2.2 million to David Hisey, deputy chief financial officer; $3 million to Timothy Mayopoulos, general counsel; and $2.8 million to Kenneth Phelan, chief risk officer.
At Freddie, annual compensation will total as much as $4.5 million for Bruce Witherell, chief operating officer; $3.5 million for Ross Kari, chief financial officer; $2.8 million for Robert Bostrom, general counsel; and $2.7 million for Paul George, head of human resources.
The pay deals also drew fire. With unemployment near 10%, “to be handing out $6 million bonuses to essentially federal employees is unconscionable,” said Rep. Jeb Hensarling, a Texas Republican who is a frequent critic of Fannie and Freddie.
He also criticized the administration for approving the compensation without settling on a plan to remove taxpayer supports: “To be doing that with no plan in place is just unconscionable.”
The FHFA said that Fannie and Freddie “must attract and retain the talent needed” for their vital role in the mortgage market.
Millions and millions of Dollars paid out to executives that are accountable for nothing but billions of losses. Folks, this is a gravy train and a bonanza, way too beautiful for those involved to ever consider ending it.
I would only like to ask the officials in charge one humble favor: Don’t ever again impute the excesses that led to the crisis on the “free market” and “capitalism“. I have had it with that nonsense. The excesses were put in place, pushed forward, and are being maintained by the government, not the market.
All these people are doing is enriching themselves at the expense of the hard working taxpayer. Fannie and Freddie and with it all those lavish executive compensations for no performance at all would have never existed in a free market.
The market tried to correct all the inevitable consequences of government interventionism, namely Federal Reserve induced credit expansion, its corollary fractional reserve lending and the ensuing business cycle, the establishment of the government backed institutions Fannie and Freddie, the establishment of the government backed credit rating cartel, the ongoing increase in government spending in relation to private spending.
And yet, they STILL manage to get away with avoiding corrective market forces and making people believe that “just a bit more” government intervention, rules, and decrees will solve the problem. Does anyone realize that while sub-prime lending has vanished from the market, the single institution that to this day continues making subprime loans is the US government itself?? How blind and braindead must one be to chime in on this madness?
So please, go on ith your looting sprees, spend as much as you can until the system collapses and buries all its greedy, incompetent bureaucrats with it. But do let go with that incredibly intellect-insulting nonsense about how the market has created and encouraged the excesses of this crisis.
Congress Increases Debt “Limit” to $12.4 Trillion
In yet another predictable move, Congress has increased the debt limit by another $290 billion:
Congress’s move to lift the federal government’s borrowing limit by $290 billion — enough to last about two months — sets the stage for a contentious debate early next year on government spending.
The Senate on Thursday approved the increase in a 60-39 vote that was largely along party lines. The House passed the measure last week.
The additional $290 billion in borrowing ability lifts the total public debt the federal government can hold to about $12.4 trillion and will allow the government to keep borrowing through February.
Treasury officials had warned that the current limit of $12.1 trillion was close to being breached. Congressional leaders scrambled to raise the ceiling before they began the holiday recess.
An increase in the debt ceiling is largely symbolic as it represents money already spent by the U.S. government. In the unlikely scenario where it was ever breached, however, there would be significant consequences for the financial markets. The federal government would be forced to default on its obligations, and could lose its top credit rating, having to pay much higher interest rates as a result.
Just two weeks ago, several senior Democratic lawmakers had said they were close to reaching an agreement on an increase in the debt limit of $1.8 trillion to $1.9 trillion, enough to support the federal government’s borrowing needs through 2010. That would have avoided the need to take up the issue again next year, when many Democratic lawmakers are expected to face tough re-election battles.
But when it became apparent there wouldn’t be sufficient support in the Senate for that, Democrats scaled back their ambitions and moved forward with the more modest increase.
That leaves Congress facing another debate on the issue before the end of February. Senate Majority Leader Harry Reid (D., Nev.) said this week that would be the first order of business the Senate deals with when lawmakers return Jan. 19.
Republicans are hoping to tap into the public’s anxiety about the federal government’s finances to make gains in the polls next November.
When the Senate takes up the debt issue in January, Republicans plan to hold votes on a number of measures that would seek to restrain the federal government’s ability to spend. These include discretionary spending caps, a move to strip out already-committed funding from the fiscal 2010 budget and the creation of a commission to investigate longer-term solutions to the debt issue.
I love the part about “creating a commission to investigate longer-term solutions to the debt issue”. This is precisely what we can expect from Congress. More commissions, debates, talk, surprises about this or that shortfall, and so on and so forth.
Every month someone from some party says we have to deal with the debt issue, reign in spending, cut expenses and return to fiscal discipline. Yet, when it comes to actually voting on the single measure that matters in this regard, they are rather quick to approve more of the same.
Note that the official debt numbers are a sham anyway. Total US debt is not at $12 trillion. The Treasury itself estimates that total government obligations for Social Security and Medicare are at $43 trillion, as I noted before:
The SOSI provides additional perspective on the Government’s long term estimated exposures and costs. However, it should be noted that the Government’s financial statements do not reflect future costs implied by any current policy, such as national defense, the global war on terrorism, and disaster relief and recovery. Table 3 shows the Government’s estimated present value of future social insurance expenditures, net of dedicated future revenues for the programs reported in the Statement of Social Insurance (SOSI), projected to be $43 trillion as of January 1, 2008 for the ‘Open Group’6. While these expenditures are currently not considered Government liabilities, they do have the potential to become liabilities in the future, based on the continuation of the social insurance programs’ provisions contained in current law.
A liability, or debt, is simply “the obligation of one person or group to provide future goods to another person or group.” Thus, for the discerning economist, it is rather irrelevant if the government “considers” or “officially calls” them liabilities. As far as their impact on human action is concerned, and thus all that economics cares about, they are debts.
This brings the total US government debt up to $55 trillion, an implicit mortgage burden of $491,000 per US household. Anyone in Congress wanna deal with THAT?
Of course not, they will continue to push the boundaries, and of course they will raise the limit once again, come February.
From 1989 on, the Japanese government has launched one stimulus after another to no avail, leaving Japanese taxpayers with the largest public debt per capita of all industrialized nations.
A burden that the US government seems to be more than willing to have its taxpayers shoulder over the years to come unless someone picks up a history book and tries not to feverishly repeat mistakes others made in the past.
Thus the long term outlook for the US economy is the fate Japan took: A long lasting correction supercycle with one failing “stimulus” program after another, and with on and off periods where the economy slips out of and back into recessions from time to time.
The public should not be deluded into thinking that such thing as a “limit” exists in the minds of their representatives.
May I ask: If all Congress keeps doing is to raise the debt limit quarter by quarter, why not get rid of the damn thing altogether?
Atheism – The Source of the Most Immoral Evils in History
Ron Paul: “Wake up before our government bombs Iran!”
Fun Facts About US Government Spending
Anybody who seriously supports even $1 more government spending in the United States may want to ponder the following simple facts:
- Take a look at the most recent “Summary of Receipts, Outlays, and Surpluses or Deficits (-): 1789–2014“
- In there you can see that under president Reagan the federal government spent a total of $7 trillion during the 8 years from 1981 through 1988, a number higher than the combined expenses of all previous US governments from 1789 through 1980 ( a mere $6.5 trillion)
- Under George H. Walker Bush, in only 4 years (1989-1992), the federal government spent a total of $5.1 trillion, more than the combined sum of all governments from 1789 through 1977 ($4.9 trillion)
- Under President Clinton the government spent a total of $12.6 trillion, more than the combined sum from 1789-1987 ($12.5 trillion)
- Under President Bush the federal US government spent a total of $21 trillion in the 8 years from 2000 through 2008, this number is higher than the expenditures of all US governments combined during the 204 (!!) years from 1789 through 1993
- Already, according to the Obama administration’s estimates, the federal government is planning to spend a total of $22 trillion only over the 6 years from 2009 through 2014, which would probably compute to about $30 trillion over the entire 8 year period, a number that would top all combined federal government expenses from 1789 through 1999
In case anyone is interested and hasn’t yet looked at relative numbers:
The size of government in relation to private sector has grown to 40% in 2009, according to www.gpoaccess.gov estimates.
Below please find a historical chart that shows the growth of the size of government in the US from 1930 on through now. I estimated the numbers of state/municipal expenses prior to 1948, based on the general observable trend back then, applied the GPO’s estimate for 2009 federal expenses, and assumed that state/municipal expenses in 2009 remained at the same level as 2008:
Do you see where this is going? Do you understand what we mean when we say “things are out of control”? This train wreck is headed for a cliff and the public is cheering on its acceleration. The system will have to play itself out, and in the very process it is going to destroy itself.
All we can do is remain calm and collected, don’t stress over this madness. Educate yourself and your friends and family about the truth about Freedom, Peace and Happiness. Act upon it. Understand the concepts of Ethics, Human Nature, Government, and Liberty. Act upon it.
Once people understand the truth, society will be transformed into a viable, peaceful, and prosperous system.
More Americans Choose Reason Over Religion
From a recent gallup poll:
This Christmas season, 78% of Americans identify with some form of Christian religion, a proportion that has been declining in recent decades. The major reason for this decline has been an increase in the percentage of Americans claiming no religious identity, now at 13% of all adults.
… I might be naive of course. Just because more Americans abdicate from fairy tales of talking snakes, virgin births, or a Jewish zombie sent to earth by his father who was really himself, doesn’t mean they are not choosing some other blind ideologies, such as socialism, belief in government, etc.
In the long run, reason will prevail. But the long run is, by definition, long …
Anarchism / Voluntaryism FAQ
Since one continues to face the same questions and fallacies again and again when bringing up the concept of anarchism/voluntaryism, I want to use this post to address them all in one wash. I will from hereon out refer to it as voluntaryism, because the term much more intuitively labels the concepts I am referring to and because there is no false stigma associated with.
1. “What is voluntaryism?”
Every single policy that voluntaryism recommends can be traced back to one simple thing: The complete and unconditional rejection of aggression, meaning the initiation of violence by one person against another.
Voluntaryism’s rejection of an organization such as the government merely stems from its rejection of aggression, simply because government is by definition the very institution that perpetually performs acts of aggression, a.k.a taxation, with impunity.
We have to realize that a system of government only works because it is silently being tolerated by the large majority of the people. It is thus, for the most part, a result of centuries of conditioning and indoctrination. Without this silent approval of ongoing acts of aggression that no single organized crime organization would ever be granted, the system would fall apart immediately.
The government can only exist because the majority of the people think it is proper for it to use aggression to obtain its funds, and that nobody has the right to defend his property when faced with such an act of theft.
Once the majority of the people consistently accepts everyone’s natural right to his body and his property, and thus found it to be proper for everyone to defend those things when aggressed against, either by himself or with the help of a professional defense agency, the system of voluntaryism will have been reached.
Thus the single and most concise definition of voluntaryism as a political philosophy can’t be anything but this: Voluntaryism is a state of affairs where the majority of the people within a certain territory accepts everyone’s property rights equally, meaning that it is proper for everyone to violently defend all aggressions against his body and property.
2. “What is voluntaryism NOT?”
Voluntaryism is NOT
- everyone doing whatever they want.
- mass warfare.
- chaos.
- a pie in the sky illusion that assumes that all humans are saints and would never turn bad, it is, in fact, the exact opposite.
3. “But voluntaryism is never going to happen!”
The task of voluntaryism is, for the most part, not a political one, but an educational one. Once the majority of the people is educated about the truths regarding voluntaryism, and the benefits it would bestow upon all of us, voluntaryism will be accomplished. To be sure, it is not matter of IF, but rather WHEN it will happen.
Those people who say that “it’s never going to happen” will always exist. They have been proven wrong so many times in the past that their boring, laughable, and uncreative platitudes need not impress or concern us in any specific way. Under feudalism, capitalism and free formation of businesses and trade were “never going to happen”. Under slavery, abolition was “never going to happen”. Under segregation, integration was “never going to happen”. An India independent from the British was “never going to happen” when Gandhi appeared on the stage of global politics. A collapse of the Soviet Union was “never going to happen” throughout the 20th century. An independent “United States of America” was “never going to happen” until 1776. The acceptance of the idea that the earth is round, not flat was “never going to happen” according to the Catholic church when Galileo challenged them. In fact, the whole separation of state and church was “never going to happen”.
The fact that there are still so many people who join the camp of “never going to happen” simply baffles me. It is, again, a derivative of people’s inability to think outside of the box.
4. “But if there is no government, then who takes care of X ??”
The argument is always the same, no matter what good you replace X with :
“I do understand that not all goods need to be provided by government and I even recognize the blessings of the market and competition when it comes to producing the best and cheapest possible goods. But in the case of X it’s different. X is an essential service with a high demand for it. Without X life on earth as we know would be unimaginable or at least severely impaired. X is needed by everybody all the time, we simply can’t take any chances with X.
If X were to be provided on the voluntary market it would be complete chaos. It is simply unimaginable for competing providers of services to offer different kinds of X in different areas.
Thus we need the government to hold a gun to people’s head, extort money that they will use for the provision of X, and outlaw all competition with it.”
This argument is, again, a classical example of the majority’s incapability to think outside of the box. One cannot blame them for it. We all grew up under a system where X was provided by the government. It is a frightening thought to unleash the “callous forces of the market” upon it. We were brought up, educated in public schools, and shaped by media and papers all around us in accordance with the status quo.
It is important to point out the following to people who advance this argument: Voluntaryism has never recommended the abolishion of X. Voluntaryism recommends that X be provided by people who have a vested interest in providing X better and more cheaply than it is currently being provided. Voluntaryism realizes that there is no way this can possibly happen if those people are given the right to point a gun to everyone’s head and/or threaten them with kidnapping if they don’t turn over the money they need in order to provide X.
It is by virtue of precisely this modus operandi that in the very process the affected individuals’ value preference is being acted against, otherwise no aggressive violence would be needed to perform the act. So the action by and in itself proves to be one that reduces the welfare of society.
Put yourself in the shoes of a government official who acts under such circumstances. What incentive, knowledge and ability does he have to truly improve and tweak his services to the taxpayer’s satisfaction? What incentive does he have to spend as little as possible of the money that was forcefully taken from others? Even if he wanted to, he simply can’t know how. There are no prices for the goods to be provided, the money has already been obtained. There are no competitors he has to go up against. But even if there were, what does he care? His wealth only depends on his employer’s ability to perform acts of theft on a periodical basis. He will try to allocate as many funds as possible to his operation. His resume will look more impressive the more people he hires and directs, no matter what they actually do. His engagement is but a temporary one. In 4 years he may be out of office. He will try to maximize his loot in as short a time frame as possible. The Trouble With Bureaucracy is in the very nature of EVERY government.
This has to be pointed out again and again: Voluntaryism doesn’t aspire a system without the good X. It aspires a system where the provider of X is not allowed to point a gun to your head, threaten you with kidnapping, and then use your money to provide X in a rather uncreative and sub-par manner.
The ugly truth about those who support government or any expansion thereof is the fact that this is precisely the activity they (willingly or not) support or want to expand: That a group of people be given the right to extort money from you at gunpoint to run its operation. What in the world is so scary about a political philosophy that rejects such a modus operandi?
Thus the argument that X is so important and essential and that that’s why we need the state to assume control of its provision is probably one of the most tragic and naive fallacies produced by ages of conditioning and indoctrination. It is so tragic, because one cursory but unbiased look at simple facts of life and history could help explode this sheer, utter and completely nonsensical notion, and help millions of peoples out of their misery within no time at all.
Ironically, Voluntaryism would lead to a much better and cheaper provision of X. To realize this, we don’t even need historical proof, we need logical proof. But even then, the historical proof is all around you on top of that! In the United States today, there exists no service in anyone’s life that is more expensive than government. There simply exists no company to which all working men and women turn over half their income every year. And the quality of the service provided is questionable to say the least. Heck, somebody please tell me: What is the federal government today doing for you that is worth half your income every year?? Which entrepreneur on the free market would get away with that?
But it doesn’t just end there. All those sectors where the federal and state governments get involved in in a regulatory function, cost much more than those where they stay out. The best examples are health care, firearms, banking, and energy.
Take, on the other hand, the internet. There probably exists no better modern day example of voluntaryism in action. The internet is filled with an abundance of cheap, if not completely free goods and services. All this with little to no government intervention at all. Disputes are settled, frauds exposed, low quality punished with low ratings, all without any government involvement. Just imagine we could expand this dynamic environment to the provision of the services we so direly need today, health care in particular is one of my biggest worries.
(Sure enough, instead of staying out, the US government is now devising plans to tighten government rules and directives that aim at regulating the internet. It is likely that one simple act of cyber terrorism or similar big event on the internet, will turn public opinion towards an acceptance of massive government involvement in this sector.)
An interesting inclination of the opponents of voluntaryism is to then ask me precisely how good X will be provided by an organization that is not allowed to extort its money at gunpoint. While all these are exciting questions to work through and analyze, it is important to point out that they are completely irrelevant to the validity of the concept of voluntaryism.
When one asks such a question he has already implicitly accepted the non-aggression principle. How exactly good X will be supplied is a question that I can make suggestions on and speculate on. But who am I to know the definite answer? I am not in a position to come up with one. This is precisely the point of a free market: That it gives entrepreneurs incentives to work things out, to solve problems, to come up with solutions that work in the interest of their consumers.
Asking me how good X will be supplied is like asking someone 40 years ago precisely how the internet was going to work at some point in the future. Heck, I doubt that most people even considered the possibility of such a thing as the internet.
If one was truly interested how good X would be supplied by people who are not allowed to extort money at gunpoint, he would think about it himself and try and come up with suggestions. I will address some of these questions here, just to give some guidance on how to approach them.
4. “How would courts operate in a stateless society?”
Even today, 99.9% of all disputes are settled outside of the court system. It is thus a valid point to say that free individuals have a natural incentive to resolve conflicts peacefully. However, it would be foolish to assume that the demand for a judicial system would vanish under voluntaryism.
It is likely that in a stateless society court companies would emerge rather quickly. Their task would be to settle disputes and render reasonable decisions that resolve the dispute. It may be more appropriate to refer to such organizations as insurance businesses. They would probably fund themselves out of membership fees, very much like present day insurance companies already do.
Different parties entering into contractual agreements would exchange their insurance information and the respective insurers would evaluate whether or not the other party is being represented by a reasonable insurer that upholds commonly accepted standards of trade and dispute resolution. Those insurers which are most commonly accepted by other insurers and which have the largest membership base will be the most successful ones with the most handsome profit for their owners. It will thus always be in the best interest of any insurer to do everything conceivably possible to retain or improve their high standing in the business community by providing the best possible and, from the point of view of competitors, most reasonable dispute resolution services.
It is important to realize that in order to protect our bodies and property, we don’t need a government to come up with laws, constitutions, bills of rights, etc. The fact that we are currently tolerating such a system is rather tragic. We are, for the most part, excluded from the legislation process, we don’t know what happens behind closed doors, we don’t read the thousands of pages of bills that pass Congress month by month, designed to do nothing but share the loot with one or the other special interest beneficiary. Common law, as a matter of fact, was never designed by governments. It is the result of a long and ongoing process of trial and error in the realms of business dispute resolution, merchant organizations, and consumer demands.
Voluntaryism would solve the problem of complicated and expensive legislation at once. There would be one simple, commonly understood, overruling maxim that all law would have to comply with:
Everyone owns his body, the unowned goods he finds first (homesteading), and the goods he obtains in voluntary exchange without threatening or performing the initiation of violence. From this follows that everyone has the right to use violence in order to defend himself against any form of aggression against the things he owns.
Competing insurers may, at times, themselves have disputes among each other. They will have to settle those disputes peacefully. This will not be a hard task for them. After all, dispute resolution is one of their core competences. But let’s assume the case where one insurer goes all out and begins abusing its power by using massive force of arms against others. First of all, nobody would ever work with that insurer again. In performing such an act it has just signed its own death sentence as far as its existence in the business community is concerned. Competing and reputable insurers would join together and smash the rogue agency at once, carried by the support of all their members, and virtually all of society. Why would any profit seeking entrepreneur take such a tremendous risk? Can anybody give me an example where a business on the free market, unbridled by government subsidies and bailouts, has ever done anything even remotely as risky?? It is simply not going to happen, but even if it were to happen, the problem would solve itself at once.
(It is curious indeed that most people assume a state of mass warfare could emerge in a stateless society, while all around the world, every day, all we see are nothing but states at war with each other, killing millions and millions of people, dropping bombs that wipe out tens of thousands of lives, using weapons of mass destruction, occupying, torturing and imprisoning people with impunity. How can one be so blind to the facts of reality?)
In order to enforce judgments, cases may arise where an insurer has to violently enforce a decision it has made, if the aggressor refuses to comply with it. For this purpose, it is conceivable that insurers would either contract with defense agencies or provide those enforcement services themselves, whichever works best.
A sample case would be one where A steals a watch from B. A is customer of insurer 1, B customer of insurer 2. A submits his evidence that his watch was stolen to insurer 1. Insurer 1 sets up a court day on which A and B meet and where both are given the ability to state their case. A may or may not show up. But if he doesn’t the decision is rather unlikely to be in his favor. Once insurer 1 publishes its decision it will be publicly available and accessible to other insurers as well. It will pay the sum of restitution to A and move forward in obtaining the watch from B. Insurer 2 is likely to stay out of it, given that B was given all the means to defend his claim. If insurer 2 were to go rogue and join in on B’s act of aggression by shielding him from acts of repossession, it would do severe damage to its image as a reputable insurer. One single case like this would immediately make all competing insurers cut their ties with insurer 2, and nobody would enter into contracts with someone who is a member of insurer 2. It would overnight lose tens of thousands of customers who will be impelled to shop around for a new insurer.
This is not to say that such acts are not going to happen under voluntaryism. But they would be self defeating for the organization in question, and would swiftly put it out of business, thus solving the problem rather quickly.
The corresponding would apply to person B. So long as he doesn’t give in to the demands of insurer 1, nobody will ever want to represent him as insurer again while his representation by insurer 2 is now completely worthless. This means that anytime he wanted to enter into a contract with someone or use somebody’s services, alarm bells would go off at the service provider’s insurance company. He would most likely be refused services wherever he goes. Remember, everything is private property in a stateless society. Everyone has the right to refuse service and would immediately do so when faced with a criminal. He would be unable to rent a place, drive on the roads, sleep in a park. In short, he would become a complete outcast. Can there be a stronger deterrent from criminal behavior than this?
5. “Who would build the roads in a stateless society?”
Roads would be built and maintained by road companies, plain and simple. They would charge a usage or maybe a subscription fee to their users. How exactly this can be done most efficiently would, again, be up the the respective entrepreneurs in the sector. The idea that government is needed to build and maintain roads is a rather strange one.
For it was never the government who came up with the concept of roads in the first place. The first roads were built and maintained by merchant organizations who represented the merchants in the respective area, and who fully took on the cost of building and maintaining roads, so as to facilitate a vast and ongoing supply of consumers coming to the area and buying from them.
Even today, we see roads, or rather sections of roads that those who maintain them charge for. Such is the case with bridges, tunnels, and with turnpikes in certain areas. Unfortunately, those tasks are currently performed by governments for the most part, which has unsurprisingly caused a constant increase in the fees charged.
A common objection is that different road companies would be unable work together and that complete chaos would ensure on our streets. This, too, is a complete and utter fallacy. There are so many services on the market that require a certain infrastructure and are provided by different companies, where those same companies cooperate and develop common standards in order for their customers to have a seamless experience. Different cell phone carriers are only one example. Other examples would be different internet service companies, or developers of business software, such as accounting and CRM. Common web standards such as TCP/IP, XML, and the like were not developed by governments. Nor do they need to be enforced in any way. It is in the best interest of the individual businesses to use them.
Again, it is here not my task to lay out and devise how precisely roads will be provided without government intervention. I am merely trying to open the reader’s mind to the fact that there are alternatives and that freely enterprising individuals will always have a natural incentive to come up with solutions that benefit their consumers in the best possible way.
6. “Doesn’t voluntaryism naively assume that all humans are saints?”
A common criticism of voluntaryism is that it is out of touch with reality and that it simply doesn’t work this way in the real world:
“Voluntaryism assumes that nobody will step out of line and that everyone will play along. But the reality is different. There will always be individuals who do not act in conformity with the necessities for a peaceful society. Thus a government is necessary to maintain the peace and enforce regulations, laws, and standards. Voluntaryism is hopelessly naive in thinking that we could ever do without a government.”
This objection simply suffers from completely false assumptions. For nowhere does voluntaryism ever assume that all humans are saints. No critique could be farther from the truth. Voluntaryism believes the exact opposite. It understands that there will always be a small number of individuals who desire to violate the non-aggression principle. For this very reason it is at the very core of its definition to respect every individuals rights to self defense as I already outlined under #1.
Voluntaryism understands that if we desire to maintain the peace and ensure that acts of aggression are avoided, the very last thing we can possibly do is to give a certain group of people the right to do just that, and on a perpetual basis: to forcefully take money away from individuals to fund its operations.
Voluntaryism believes that if anything is naive, it is the thought that government officials are saints. Nothing could be farther from the truth. If the majority of the people believes that it is proper and just to establish an organization that extorts money at gunpoint with impunity, then where are all those evil people we are so concerned with going to go? – Of course, they will join the government!
This is not to say in any way that everyone who works for a government agency is a bad person. Lots of people want to do good. But it is in the very nature of the organization they work for to be dependent on extorted funds. The higher ups in the organization are aware of this and the predatory mentality and nature that is at the root of this organization will sooner or later permeate all activities inside. This is why lots of honest and hard working people’s aspirations are often times crushed when they work inside a government apparatus, or in a company that is heavily dependent upon government subsidies and bailouts.
7. But there are no examples of voluntaryism ever having worked, are there ??
This is a very commonly held notion. It shows how severely our beliefs have been compromised by false ideologies throughout our lives.
For if one took one simple look around oneself, he would find the answer to this question at once. The best example of voluntaryism working … is yourself.
You cooperate in society on a voluntary basis. You don’t use aggression to buy groceries. You don’t use aggression to get your clothes. You don’t use aggression when debating with friends and family. You don’t use aggression to find a job. You don’t use aggression to settle disputes with neighbors, clients, vendors, employees, etc. You are perfectly capable of living peaceful, free, and beautiful lives.
It is in very few cases where we ever interact with anybody from the state. Every April 15th we file our taxes to confirm how much the state has taken from us throughout the year. Sometimes we don’t, and then a tax collector shows up to make us do it or kidnap us at gunpoint if we don’t. Sometimes we go to the DMV to get a driver’s licence. At times we get fined by the police because we do a U Turn where they decree, for whatever reason, that it is illegal. We send our kids to public schools where they spend 14 years of their life being indoctrinated about how great the state is, where diverse talents and opinions are put through the meat grinder of collective thinking and conformity, where opposing ideas such as presented in this article are not even for a second tolerated.
All these interactions we have with the state are, in general, rather unpleasant, boring, frustrating, and un-gratifying. Yet, due to a lack of proper education about the alternative of voluntaryism, we believe that it is utterly necessary to have this group of people with the right to use aggression against us to fund their destructive activities, be it domestic or foreign depredations, to borrow our children’s future into oblivion, and then, out of all things, to EDUCATE those same children for 14 (!!) years of their lives.
It will take years of enlightenment, dedication, and education, to open people’s eyes about one of the most simple facts about themselves: that they are inherently good.
8. But what about the poor?!
How much are individuals currently willing to give to charity on a completely voluntary basis?
On Charity Navigator we can find charity statistics for 2008:
Few people realize how large charities have become, how many vital services they provide, and how much funding flows through them each year. Without charities and non-profits, America would simply not be able to operate. Their operations are so big that during 2008, in the midst of a recession, total giving was still more than $300 billion.
How big is the sector?
Total giving to charitable organizations was $307.65 billion in 2008 (about 2% of GDP). This is a decrease of 2% from 2007.
OK, so we know that private individuals and corporations were willing to give $307.65 billion to charitable organizations on a completely voluntary basis.
How much of this money actually ends up in the hands of the needy? According to reputable charitable auditing and rating websites, such as Razoo this number seems to be around 15-20% on average.
So around $246 billion ended up in the hands of poor people as a result of completely voluntary charity donations in the US.
What about our dear, benevolent,and ferociously poverty fighting heroes from the government?
According to official government budgets, approximately $486 billion tax dollars were budgeted in that same year.
Based on multiple sources about 70% of all government programs and grants goes toward administrative expenses, meaning bureaucrats’ salaries, to anybody who has ever worked in, with, or for the government, certainly a realistic estimate:
Mary Ruwart writes:
Of course, public welfare gives over 2/3 of every tax dollar we give them to overhead (e.g., salaries of the bureaucrats who administer the program). Private charities, however, give 2/3 of every dollar to those who need help. By switching to private distribution, we’d cut overhead in half. In other words, we’d double the dollars available to the needy once again. By switching from public to private charity, we’d quadruple our help to the disadvantaged–virtually overnight!
Cato writes:
Today, 70 cents of every dollar goes, not to poor people, but to government bureaucrats and others who serve the poor. Few private charities have the bureaucratic overhead and inefficiency of government programs.
So US federal, state, and local governments together in 2008 contributed about 146 billion dollars that ended up in the hands of the poor.
In total, this means that in 2008 US citizens voluntarily or involuntarily gave about $392 billion to the poor out of which 62% (!!) was contributed by the rugged, selfish, and evil private sector while around 38% was coughed up by the virtuous, heroic and selfless government bureaucrats.
So you tell me, is the government really needed to “fight poverty” … ?
Please keep in mind that I am focusing in the above solely on existing numbers. I am not even delving into the fact that the government is the very cause of poverty, simply due to things like wars, drug policies, import quotas, the granting of monopolies to corporations and unions, the funding of foreign dictatorships, unemployment due to minimum wages and taxes, inflation through money printing, credit expansions and business cycles, the direction of capital from useful to useless needs, deliberately limiting the supply of health care products and services, etc. etc.
Ron Paul to Hillary Clinton: Do You Support the Bush Doctrine?
… why, of course she does!
China’s Bubble Produces Empty (!!!) City
… it is hard to find a better example of how government spending produces rampant malinvestment. Note that spending on such useless projects is not the only source of “GDP growth” by Chinese measures: Even funds that are only earmarked, not yet spent, are included.
What drives all this madness? It’s simple:
China’s banks extended more loans in November than economists forecast.
New local-currency loans totaled 294.8 billion yuan ($43.2 billion), compared with 253 billion yuan in October, according to data released by the People’s Bank of China on its Web site today. The median forecast of 19 economists in a Bloomberg News survey was 250 billion yuan.
M2, the broadest measure of money supply, rose a record 29.74 percent in November from a year earlier.
This is why I believe that the wide spread notion Free Floating Yuan = Stronger Yuan is a complete and utter fallacy.
China’s growth is a mirage, its bubble a monstrous one, its impending crash completely inevitable.
Has The Dollar Rally Started?
The rally of the US Dollar vs. other major currencies is something that I have been expecting for a while now. The dollar made some bold moves recently. It is conceivable that this may be the kick off to that said rally. Just as an example, below see the Euro/Dollar chart:
The upward trend in the Euro since March seems to have begun reversing. Dollar perma-bears will look at this as just another temporary counter trend move. I believe that it is possible that a longer term Dollar rally is quite conceivable, for all the reasons I stated again and again and that I will not delve into here again. You can read the “Related Posts” below if you like.
Daily FX writes US Dollar Closer to Beginning, Rather than End, of Bull Move:
This is the same chart that was published yesterday. I wrote then that “the clearest portion of the decline is the initial decline that ends at 14670. Since then, price has stair stepped lower in what could be the beginning of a 3rd wave. Staying below 14785 keeps this extremely bearish count on track. A loose target is 14000, which is the 161.8% extension of wave 1.” This analysis remains on track. Risk can be moved to 14600 and resistance is 14420-50.
Sometimes Mish tends to have the amazing tendency to call certain trend reversals almost exactly on the day of the peak/low. This is him on Nov 27: New Record Low Yield On Two Year Treasuries; Is This The Start Of A Dollar Rally?
Given the US markets were closed yesterday, I have the same question floating in my mind as a day ago, wondering if this is another one day wonder rally in the dollar (and another one day wonder selloff in equities) or if this is the start of a long awaited correction in both the dollar and equities.
A significant Dollar rally is, at the same time, very bullish for Treasurys and and very bearish for stocks. Gold may continue to do fine. Time will tell …
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